The Hidden Debt Trap: Why Gen Z Should Think Twice About Buy Now, Pay Later (BNPL)
By Gen Z Reports
10 August 2025
In recent years, Buy Now, Pay Later (BNPL) services such as Klarna, Affirm, and Afterpay have surged in popularity, offering consumers an easy way to split purchases into smaller, interest-free installments. The concept is appealing: rather than paying the full amount upfront, you can spread payments over weeks or months without the immediate sting on your bank account. This financial flexibility, coupled with the seamless integration of BNPL options into online checkouts, has made it especially attractive to younger consumers—particularly Gen Z. But behind the glossy marketing and influencer endorsements, experts warn that BNPL can quickly become a dangerous cycle of debt, especially during periods of financial stress (Fortune, 2025).
BNPL’s Rapid Growth and Gen Z’s Adoption
The scale of BNPL’s rise is staggering. In 2020, U.S. BNPL transaction volumes were measured in the low tens of billions. By 2025, industry analysts project the total to reach $116.7 billion—more than seven times the size of the market just five years prior (WebProNews, 2025). According to Digital Silk, approximately 86.5 million Americans used BNPL services in 2024 (Digital Silk, 2024), with Gen Z and Millennials leading the charge. LendingTree’s research suggests that nearly 64% of Gen Z adults (ages 18–28) have tried BNPL at least once (LendingTree, 2024).
For many young users, BNPL feels like a smarter, safer alternative to credit cards. Unlike revolving credit, these installment loans seem finite and predictable, at least on the surface. Providers often emphasize “no interest” and “no fees if you pay on time,” which reassures consumers wary of traditional credit debt. However, this framing masks a more complex reality.
Why Gen Z Is Vulnerable to BNPL Debt
One of the main reasons Gen Z is drawn to BNPL is accessibility. The approval process is fast, often requiring only a soft credit check or none at all (Investopedia, 2024). This means even consumers with thin credit files or prior credit challenges can qualify. While this lowers barriers, it also means users can easily open multiple BNPL loans simultaneously—sometimes without a clear picture of their total obligations. Research from the Federal Reserve Bank of Kansas City found that 63% of BNPL users had more than one active plan at the same time, and 33% juggled loans with multiple providers (Kansas City Fed, 2023).
Gen Z is also more likely to experience financial volatility, with incomes that can fluctuate from part-time jobs, gig work, or early-stage careers. The temptation to smooth out these fluctuations with BNPL is strong, especially during economic pressure points like inflation spikes or the restart of student loan payments (New York Post, 2025). Unfortunately, this can create a precarious pattern: using BNPL to bridge short-term gaps, only to be hit by multiple repayment dates in quick succession.
The Mechanics of Overspending and Debt Stacking
Psychologically, BNPL encourages overspending by reframing the cost of a purchase. Instead of seeing a $200 price tag, the consumer sees “$50 today, then three more payments.” This shifts the mental calculation from “Can I afford $200?” to “Can I handle $50 right now?” Studies show this makes consumers more likely to buy non-essential items on impulse. A Motley Fool survey revealed that fewer than half of Gen Z BNPL users plan their purchases ahead of time (The Motley Fool, 2023).
Debt stacking compounds this issue. Because each BNPL plan operates on its own repayment schedule, it’s easy to lose track of obligations. A user might open a Klarna plan for clothes, an Afterpay plan for electronics, and an Affirm plan for concert tickets, all within a few weeks. Each installment might feel manageable in isolation, but together they can overwhelm a monthly budget—especially if due dates overlap with rent, utilities, or other fixed expenses (Kansas City Fed, 2023).
The Credit Score Conundrum
One of BNPL’s hidden risks lies in its relationship with credit scores. Traditionally, most BNPL activity has gone unreported to credit bureaus. This means paying on time does little to build a credit history, but missing payments can still trigger collections activity, which can harm your credit (Investopedia, 2024). That’s about to change: FICO announced that starting in late 2025, BNPL payment data will be factored into its scoring models (Business Insider, 2025). While this could help responsible users demonstrate positive repayment history, it also means that late payments—once invisible to lenders—will now have a direct and potentially damaging effect on creditworthiness.
The challenge is that BNPL repayment structures don’t always align with how traditional credit scoring evaluates risk. A single missed installment, even if small, could be treated similarly to missing a credit card payment. And with BNPL’s multiple overlapping schedules, the margin for error is much narrower.
Financial Strain and Rising Delinquencies
The financial consequences of missed BNPL payments are already showing. Klarna reported a 17% increase in credit losses in early 2025, totaling $136 million in just one quarter (AP News, 2025). LendingTree’s surveys found that 41% of BNPL users had been late on a payment in the past year—up from 34% the year before (Food & Wine, 2025). While late fees might only be $7 or $10, they can trigger overdrafts, create compounding charges, and in some cases result in account suspension or collection activity.
These patterns suggest that BNPL’s rapid expansion is creating risk not only for consumers but for the providers themselves. If defaults continue to climb, companies may tighten approval standards, introduce more aggressive late penalties, or adjust pricing—changes that could ultimately make BNPL less appealing or accessible.
When BNPL Makes Sense—and When to Avoid It
Financial experts generally agree that BNPL can be used responsibly in certain situations. For example, spreading the cost of a large, planned, and necessary purchase—such as a work tool or appliance—can help manage cash flow without incurring credit card interest (AP News, 2025). However, it should never be a fallback for essentials like groceries or rent, as this signals an underlying budget shortfall that BNPL cannot solve.
To use BNPL wisely, it’s essential to track every plan in detail. Apps, calendars, or spreadsheets can help ensure you never miss a payment. Just as importantly, avoid stacking multiple BNPL loans—stick to one at a time, and only open a new plan after the current one is fully paid off. For those looking to build credit, a 0% APR credit card with purchase protection may be a better long-term choice (New York Post, 2025).
Conclusion: A Call for Financial Awareness
BNPL is not inherently bad, but it is a tool that demands discipline and awareness. For Gen Z, who are still establishing financial habits and credit histories, the stakes are high. The convenience of splitting payments can quickly give way to the stress of juggling multiple debts, especially when economic pressures mount. With credit scoring changes on the horizon, the cost of a late BNPL payment may soon extend far beyond a small fee.
In the end, the key is intentionality. Use BNPL as a planned part of your budget, not a crutch for impulse spending or income gaps. And remember: while “buy now” is easy, “pay later” always comes due.
References
AP News. (2025, February 15). Why are more shoppers struggling to repay 'buy now, pay later' loans? Associated Press. https://apnews.com/article/f7fd30f2a0e900460919fad76a1e0dbf?utm_source=chatgpt.com AP News. (2025, March 9). Tips to help manage your buy now, pay later loans. Associated Press. https://apnews.com/article/02852578a991fb0d31879acd0b687e0d?utm_source=chatgpt.com Business Insider. (2025, June 17). Buy now, pay later loans will soon hit credit scores — and experts think Gen Z could be at risk. Business Insider. https://www.businessinsider.com/buy-now-pay-later-gen-z-credit-scores-fico-klarna-2025-6?utm_source=chatgpt.com Digital Silk. (2024). Buy now, pay later (BNPL) statistics for 2024. Digital Silk. https://www.digitalsilk.com/digital-trends/buy-now-pay-later-bnpl-statistics/?utm_source=chatgpt.com Food & Wine. (2025, March 19). Americans are turning to short-term loans to afford their groceries. Food & Wine. https://www.foodandwine.com/buy-now-pay-later-loans-groceries-lendingtree-report-11733465?utm_source=chatgpt.com Fortune. (2025, May 11). Gen Z drowning in buy now, pay later debt, experts warn. Fortune. https://fortune.com/2025/05/11/gen-z-drowning-in-buy-now-pay-later-debt-experts-warn-luxury-lifestyle-trap/?utm_source=chatgpt.com Investopedia. (2024, May 8). What is buy now, pay later (BNPL)? Investopedia. https://www.investopedia.com/buy-now-pay-later-5182291?utm_source=chatgpt.com Kansas City Federal Reserve Bank. (2023, December). Financial constraints among buy now, pay later users. Federal Reserve Bank of Kansas City. https://www.kansascityfed.org/research/economic-review/financial-constraints-among-buy-now-pay-later-users/?utm_source=chatgpt.com LendingTree. (2024, October 3). Buy now, pay later loan statistics. LendingTree. https://www.lendingtree.com/personal/buy-now-pay-later-loan-statistics/?utm_source=chatgpt.com Motley Fool. (2023, September 14). Buy now, pay later statistics. The Motley Fool. https://www.fool.c